•••-^^TORWION 

BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

Essential Air Service at 

ADAK, 

ATKA, and 

NIKOLSKI, ALASKA 

under 49 U.S.C. § 41731 et. seq. 

Docket OST-2000-8556 

Docket OST-1995-363 

PROPOSALS OF PENINSULA AIRWAYS, INC. 

TO PROVIDE ESSENTIAL AIR SERVICE 

AT ATICA. NIKOLSKI. AND ADAK. ALASKA 

Communications with respect to this document should be addressed to: 

Danny Seybert 

Scott Bloomquist 

PENINSULA AIRWAYS, INC. 

6100 Boeing Avenue 

Anchorage, Alaska 99502 

March 16, 2010 

Robert E. Cohn 

Patrick R. Rizzi 

Hogan & Hartson L.L.P 

555 13th Street, N.W. 

Washington, D.C. 20004 

(202) 637-4999/5659 

recohn@hhlaw.com 

prrizzi@hhlaw.com 

Counsel for 

PENINSULA AIRWAYS, INC. 
BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON. D.C. 

Essential Air Service at 

ADAK, 

ATKA, and 

NIKOLSKI, ALASKA 

under 49 U.S.C. § 41731 et. seq. 

Docket OST-2000-8556 

Docket OST-1995-363 

March 16, 2010 

PROPOSALS OF PENINSULA AIRWAYS, INC. 

TO PROVIDE ESSENTIAL AIR SERVICE 

AT ATKA. NIKOLSKI. AND ADAK. ALASKA 

Pursuant to DOT Order 2010-2-5 and Notice, dated March 10, 2010,1 

Peninsula Airways, Inc. ("PenAir") hereby presents its proposals to provide 

subsidized essential air service ("EAS") at Adak, Atka, and Nikolski, Alaska, 

for a two-year period beginning July 1, 2010. 

I. PenAir's Atka EAS Proposal 

PenAir has long operated air service to Atka, Alaska, and it is Atka's 

current EAS service provider, having most recently been reselected to provide 

subsidized essential air service for a two-year period in 2008 by DOT Order 

2008-3-36. PenAir's Atka service is vitally important for the community, its 

residents, and its businesses. EAS for Atka requires a minimum of one 

J. By Notice, the Department extended the due date for EAS proposals until March 17, 

2010. 

VADC - 004721/000002 - 3037002 v5 
roundtrip a week (allowing up to two intermediate stops) to either Adak, 

Dutch Harbor or Cold Bay utilizing small aircraft. PenAir hereby submits, 

for the Department's consideration, the following two alternative proposals 

for EAS to Atka: 

1. A tka Proposal # 1 

PenAir proposes to provide three weekly nonstop roundtrips between 

Atka and Dutch Harbor using 8-seat Metroliner III aircraft. This is the 

currently subsidized EAS operation for Atka and is PenAir's preferred 

proposal for Atka.2 The annual subsidy for PenAir's EAS Proposal # 1 for 

Atka will be $283.688.01 for Year 1 and $297.872.41 for Year 2. See Exhibit 

1-A. The subsidy request for Year 2 in this Atka proposal (and for Year 2 of 

the other PenAir proposals in this submission) are slightly higher (by 5%) 

than the subsidy requests for Year 1 in order to account for market volatility 

and cost fluctuations that affect these subsidized operations over the course 

of the two-year award period. 

2 Although having initially awarded the Atka-Dutch Harbor EAS to PenAir for four 

roundtrips with the Piper T-1040, see DOT Order 2008-3-36, the Department subsequently 

approved, with community support, an alternative service pattern in this market using the 

Metroliner III three times per week, see DOT Order 2009-6-28. 

•,\\DC - 004721/000002 - 3037002 v5 
2. Atka Proposal # 2 

Pursuant to the Department's specific request, see DOT Order 2010-2-

5, at page 3,3 PenAir submits a proposal involving two weekly nonstop 

roundtrips between Atka and Dutch Harbor using 8-seat Metroliner III 

aircraft. The annual subsidy for PenAir's EAS Proposal # 2 for Atka will be 

$150.454.04 for Year 1 and $157.976.74 for Year 2. See Exhibit IB . PenAir 

reiterates that its preferred proposal is for three weekly roundtrip flights 

which it believes will better serve the community's air service needs than a 

reduced, two-weekly service pattern. 

II. PenAir's Nikolski EAS Proposal 

PenAir is the current EAS subsidized service provider at Nikolski, 

Alaska. It has proudly served Nikolski for many years and was last 

reselected to provide subsidized essential air service for a two-year period in 

2008 by DOT Order 2008-3-36. EAS for Nikolski requires a minimum of one 

scheduled and one flag stop roundtrip flight a week to either Dutch Harbor or 

Cold Bay with small aircraft (allowing up to two intermediate stops). 

PenAir proposes to continue its current service pattern at Nikolski, 

providing two weekly nonstop roundtrips between Nikolski and Dutch 

Harbor, using the Grumman Goose G-21A aircraft. The annual subsidy cost 

'•}_ "At Atka, .. . we request that PenAir submit a proposal with two round trips per 

week as it did on June 11, 2009, when it requested an alternative service pattern." 

'\ DC • 00472 1/000002 - 3037002 vS 
for PenAir's EAS service to Nikolski will be $623.422.58 and $654.593.70 for 

Years 1 and 2, respectively. See Exhibit 2. 

III. PenAir's Adak EAS Proposal 

Prior to the Department's selection of Alaska Airlines, PenAir had for 

many years provided quality EAS service to Adak. PenAir proposes to 

provide five weekly roundtrip flights (4x-passenger/cargo; Ix-all-cargo) 

between Adak and Anchorage using PenAir's flagship Saab 340 aircraft on an 

Anchorage-Cold Bay-Adak-Anchorage routing. PenAir's proposal will 

require an annual subsidy of $828.717.46 for Year 1 and $870.153.33 for 

Year 2. See Exhibit 3. 

PenAir has had longstanding experience in providing essential air 

service to Adak. Following the demise of Reeve Aleutian Airways in 2000, 

PenAir was the only airline with the demonstrated interest and resources to 

step in immediately to provide Adak with EAS on an emergency basis and 

was selected to do so by DOT Order 2001-7-3. During the period of time that 

PenAir served Adak, it enjoyed a 99% schedule completion rate. 

The benefits of PenAir's EAS proposal for Adak are compelling and 

easily outweigh those of any other Adak EAS proposal. PenAir's Saab 340 

aircraft is appropriately sized for the Adak marketplace. The aircraft has a 

long stage length and reasonable operating costs, and offers passengers the 

comfort and convenience of a stand-up cabin, leather seating, full lavatory, 

«\DC - 004721 '0OOO02 - 3037002 v5 A 
flight attendant service, and substantial cargo capacity. PenAir's 

combination Saab 340 can accommodate up to 30 passengers and 2,500 

pounds of freight, and its all-cargo Saab 340 can carry several thousand 

pounds of freight and mail. 

PenAir's proposal for five weekly flights would more than double the 

number of weekly flights currently provided to Adak and significantly 

reduce the Department's subsidy costs for EAS to Adak 

Indeed, the savings to the federal government are even greater than 

the far lower subsidy required for PenAir's service because PenAir's Saab 

service does not require multiple TSA agents to be transported to and from 

Anchorage or Cold Bay for each service as is currently done for Alaska 

Airlines' service to/from Adak. This provides substantial additional savings 

for the federal government (i.e., TSA and DOT) as well. 

In sum, PenAir's Saab proposal will best serve the interests of both the 

Adak community and the Department by providing higher frequency, reliable 

EAS at a reasonable subsidy level. 

By DOT Order 2003-1-8, the Department replaced PenAir with jet 

service, but in doing so, the Department expressed concern about the high 

subsidy cost to serve the community: 

"In non-Alaska communities, the Department would nearly 

always select the lower-cost alternative when the subsidy 

differences [are substantial]. . . . [T]he Department has 

traditionally given even greater weight to desires of Alaska 

«\DC . 004721 /000002 - 3037002 v5 c 
communities, given the state's greater dependence on air 

service. Clearly, no community currently relying on subsidized 

air service is as isolated and dependent on air service as Adak. . 

. . However, given the very substantial level of subsidy required 

to support this service, if traffic does not respond or the level of 

subsidy support needed does not decline, we will review the 

issue towards the end of the one-year contract period." 

The Department reiterated this concern again in DOT Order 2004-6-24: 

"[W]e remain concerned about the high level of subsidy required 

to support Adak's air service. After one-year of reliable service 

by Alaska Airlines, it is clear that the need for subsidy has not 

declined significantly. The community and the carrier have 

argued that within the next two-year period there will be 

significant expansion of Adak traffic, which should reduce the 

need for subsidy. The Department will follow these traffic 

numbers closely." 

And, when the Department most recently reselected Alaska, it once again 

repeated this concern stating that "we remain concerned by the high level of 

subsidy required for Adak service...." DOT Order 2008-3-36, at 3. After years 

of being "concerned," it is now time for the Department to confront this 

concern, namely by choosing PenAir's higher frequency and lower-subsidy 

proposal. 

PenAir believes that its prior experience (with a 99% completion rate) 

serving Adak and its higher frequency, lower-cost proposal will best serve the 

public interest and the needs of the Adak market, providing more frequent 

delivery of goods, parts, equipment, and personnel in support of the island's 

industry, at a reasonable level of subsidy. 

'"DC - 00472 1/000002 - 3037002 v5 
IV. Carrier Selection Factors Favor PenAir. 

Under 49 U.S.C.§ 41733(c)(1), the Department considers five factors in 

selecting a carrier to provide subsidized essential air service including: (l) 

service reliability! (2) contractual and marketing arrangements with a larger 

carrier at the hub; (3) interline arrangements with a larger carrier at the 

hub; (4) community views; and (5) each applicant's relative subsidy 

requirements. 

PenAir excels in each of these categories. PenAir is among the largest 

and most reliable commuter airlines in the state of Alaska and has had 

decades of experience in providing reliable subsidized essential air service to 

small Alaska communities (e.g., 99% completion factor at Adak), including 

experience at each of the communities at issue. PenAir's subsidy proposals in 

this case represent highly cost-efficient essential air service appropriately 

sized to meet the needs of the communities on an economically efficient basis. 

In addition, PenAir has a marketing arrangement (interline and codeshare) 

to/from PenAir's hub at Anchorage which offers seamless service for PenAir's 

passengers to the national air transportation system. 

".\DC - 00472 1/000002 - 3037002 v5 
In conclusion, PenAir requests that the Department select it to be the 

subsidized essential air service carrier at Adak, Atka, and Nikolski, Alaska, 

for a two-year period. 

submitted, 

Robert E. Cohn 

Patrick R. Rizzi 

Hogan & Hartson L.L.P 

555 13th Street, N.W. 

Washington, D.C. 20004 

(202) 637-4999/5659 

Counsel for 

PENINSULA AIRWAYS, INC. d/b/a PenAir 

•'.^DC - 004731/000002 - 3037002 v5 
EXHIBIT 1-A 

ATKA PROPOSAL # 1 (DUT-AKB-DUT, 3x weekly) 

EAS Subsidy Need at Atka, Alaska 

Metroliner (SA-227) 

ATKA 

Block Hours/Trip @ 3.5 

Departures (6 per week) 

Miles 

FltAVk = 3 

546 hours annually 

312 departures annually 

337 miles 

Pax ATKA 

Freight ATKA 

Mail ATKA 

Total Revenue 

Flying Ops per hr @ 

Fuel & Oil per hr @ 

Insurance per hr @ 

Maintenance per hr @ 

Aircraft per hr @ 

Direct Expense 

Tfc related @ 

Departure rel wtd dep @ 

Capacity related @ 

Indirect Expense 

Total Operating Cost 

Return @ 

Total Economic Cost 

Subsidy Need — Year 1 

Subsidy Need - Year 2 

Revenue 

7864 

33,2405 

123,4606 

. 

$300.00 

$1.91 

$1,327 

Expenses 

$249.50 

$258.56 

$64.74 

$371.34 

$37.18 

13.2% 

$154.40 

10.4% 

5% 

Year 1 + 5% 

$235,800.00 

$63,488.40 

$162,967.20 

$462,255.60 

$136,227.00 

$141,173.76 

$35,348.04 

$202,751.64 

$20,300.28 

$535,800.72 

$70,725.70 

$48,172.80 

$55,723.27 

$174,621.77 

$710,422.49 

$35,521.12 

$745,943.61 

$283,688.01 

$297,872.41 

.1 Order 2010-2-5, Appendix B, page 2, FY 2009 pax. 

.5 Order 2010-2-5, Appendix B, page 2, FY 2009 freight (x 200 lbs). 

6 Order 2010-2-5, Appendix B, page 2, FY 2009 mail (x 200 lbs.). 

7 Based on Part 121 bush linehaul ($5.6072) and terminal ($745.01) mail rates effective 

April 3, 2010, DOT Order 2010-3-18. 

\/\DC - 004721/000002 - 3037002 v5 
EXHIBIT 1-B 

ATKA PROPOSAL # 2 (DUT-AKB-DUT, 2x weekly) 

EAS Subsidy Need at Atka, Alaska 

Metroliner (SA-227) FltAVk = 2 

ATKA 

Block Hours/Trip @ 3.5 364 hours annually 

Departures (4 per week) 208 departures annually 

Miles 337 miles 

Pax ATKA 

Freight ATKA 

Mail ATKA 

Total Revenue 

Flying Ops per hr @ 

Fuel & Oil per hr @ 

Insurance per hr @ 

Maintenance per hr @ 

Aircraft per hr @ 

Direct Expense 

Tfc related @ 

Departure rel wtd dep @ 

Capacity related @ 

Indirect Expense 

Total Operating Cost 

Return @ 

Total Economic Cost 

Subsidy Need - Year 1 

Subsidy Need - Year 2 

Revenue 

5908 

24,9309 

92,59510 

$300.00 

$1.91 

$1.3211 

Expenses 

$249.50 

$258.56 

$64.74 

$371.34 

$37.18 

13.2% 

$154.40 

10.4% 

5% 

Year 1 + 5% 

$177,000.00 

$47,616.30 

$122,225.40 

$346,841.70 

$90,818.00 

$94,115.84 

$23,565.36 

$135,167.76 

$13,533.52 

$357,200.48 

$47,150.46 

$32,115.20 

$37,148.85 

$116,414.51 

$473,614.99 

$23,680.75 

$497,295.74 

$150,454.04 

$157,976.74 

8 Order 2010-2-5, Appendix B, page 2, FY 2009 pax., reduced by 25% to account for the 

reduction in weekly service by one frequency from the current service pattern. 

9 Order 2010-2-5, Appendix B, page 2, FY 2009 freight (x 200 lbs), reduced by 25% to account 

for the reduction in weekly service by one frequency from the current service pattern. 

LO Order 2010-2-5, Appendix B, page 2, FY 2009 mail (x 200 lbs.), reduced by 25% to account 

for the reduction in weekly service by one frequency from the current service pattern. 

11 Based on Part 121 bush linehaul ($5.6072) and terminal ($745.01) mail rates effective 

April 3, 2010, DOT Order 2010-3-18. 

v a c • OO472I/C0OOO2 • 3037002 v5 
EXHIBIT 2 

EAS Subsidy Need at Nikolski, Alaska 

G-21 Goose 

Nikolski 

Block Hours/Trip @ 2.0 

Departures (4 per week) 

Miles 

Pax Nikolski 

Freight Nikolski 

Mail Nikolski 

Total Revenue 

Flying Ops per hr @ 

Fuel & Oil per hr @ 

Insurance per hr @ 

Maintenance per hr @ 

Aircraft per hr @ 

Direct Expense 

Tfc related @ 

Dep rel wtd dep @ 

Capacity related @ 

Indirect Expense 

Total Operating Cost 

Return @ 

Total Economic Cost 

Subsidy Need - Year 1 

Subsidy Need - Year 2 

FltAVk = 2 

208 hours annually 

208 departures annually 

113 miles 

Revenue 

40412 $150.00 

23,02013 $0.65 

51,04011 $1.1315 

Expenses 

$740.15 

$312.61 

$312.42 

$1,185.40 

$185.03 

13.2% 

$83.35 

10.4% 

5% 

Year 1 +5 % 

$60,600.00 

$14,963.00 

$57,675.20 

$133,238.20 

$153,951.20 

$65,022.88 

$64,983.36 

$246,563.20 

$38,486.24 

$569,006.88 

$75,108.91 

$17,336.80 

$59,176.72 

$151,622.43 

$720,629.31 

$36,031.47 

$756,660.78 

$623,422.58 

$654,593.70 

12 Order 2010-2-5, Appendix B, page 3, FY 2009 pax. 

.13 Order 2010-2-5, Appendix B, page 3, FY 2009 freight (x 200 lbs.). 

i t Order 2010-2-5, Appendix B, page 3, FY 2009 mail (x 200 lbs.). 

1.5 Based on Part 135 bush hnehaul ($13.4782) and terminal ($745.01) mail rates effective 

April 3, 2010, DOT Order 2010-3-18. 

A\DC - 004721/000002 . 3037002 v5 11 
EXHIBIT 3 

EAS Subsidy Need at Adak, Alaska 

(5 weekly flights - 4x combination, Ix all-cargo) 

Aircraft Saab 340B FltAVk = 6 

ANC/CDB/ADK/ANC 

Block Hours/Trip @ 9.8 2,548 hours annually 

Departures (15 per week) 780 departures annually 

Miles 1188 miles 

Revenue 

Pax ANC/ADK 

Freight ANC/ADK 

Mail ANC/ADK 

Pax ANC/CDB 

Total Revenue 

Flying Ops per hr @ 

Fuel & Oil per hr @ 

Insurance per hr @ 

Maintenance per hr @ 

Aircraft per hr @ 

Flight Attendant per hr @ 

Direct Expense 

Tfc related @ 

Dep rel wtd dep @ 

Capacity related @ 

Indirect Expense 

Total Operating Cost 

Return @ 

Total Economic Cost 

Subsidy Need - Year 1 

Subsidy Need - Year 2 

20 

3,04016 $650.00 

563,84017 $2.00 

257,14018 $3.7019 

800 $450.00 

Expenses 

$222.29 

$366.48 

$65.86 

$648.65 

$168.97 

1 $55.80 

13.2% 

$278.11 

10.4% 

5% 

Year 1 + 5% 

$1,976,000.00 

$1,127,680.00 

$951,418.00 

$360,000.00 

$4,415,098.00 

$566,394.92 

$933,791.04 

$167,811.28 

$1,652,760.20 

$430,535.56 

$113,742.72 

$3,865,035.72 

$510,184.72 

$216,925.80 

$401,963.72 

$1,129,074.24 

$4,994,109.96 

$249,705.50 

$5,243,815.46 

$828,717.46 

$870,153.33 

16 Order 2010-2-5, Appendix B, page 1, FY 2009 pax.: 3,664 passengers less 624 TSA 

passengers, who PenAir would not need to transport. 

17 Order 2010-2-5, Appendix B, page 1, FY 2009 freight (x 200 lbs.). 

IS Order 2010-2-5, Appendix B, page 1, FY 2009 mail (x 200 lbs.). 

LO Based on Part 121 bush hnehaul ($5.6072) and terminal ($745.01) mail rates effective 

April 3, 2010, DOT Order 2010-3-18. 

20 The expense for flight attendants is calculated based on 4, not 5, weekly frequencies 

because the 5"' weekly flight is an all-cargo service for which there is no flight attendant 

requirement. 

'.VDC - 004721-000002 • 3037002 v5 12